Fleet & Plant Management

Plant Hire Rate - Loan Funded Purchases

  • 1.  Plant Hire Rate - Loan Funded Purchases

    Posted 08 February 2017 18:26
    Hi Mates,

    I am investigating the expansion of Council's fleet for a temporary project, and trying to draw a comparison between ownership and leasing.

    I utilise IPWEA methodology to calculate the hire rates, however I am wondering how to work it out with a loan funded item of plant.

    Instead of allowing for the opportunity cost, would I allow for the principal and interest repayments within the proposed hire rate?

    And if you were funding the plant purchase with a loan, what loan terms would you seek? Would you have it spanned over the expected life of the asset?

    Once the project is finished, if there are no further works on the horizon, we would return our fleet to its current size, but may sell our current items and roll these into the fleet as they will be newer.

    i.e. 2 new water carts for this job, sell our current 2 at the end as they will be approx 5 years old, rather than sell 2 year old ones.

    Cheers
    Nathan

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    Nathan Skelly
    Manager Operations
    Blayney Shire Council
    BLAYNEY NSW
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  • 2.  RE: Plant Hire Rate - Loan Funded Purchases

    Posted 12 February 2017 18:13
    Hi Nathan, 

    To compare ownership vs lease in this case,  there are two main cost components. 
    1. Your normal ownership cost plus opportunity cost is compared with the lease cost. This assumes
    - ownership is purchase lease estimated residual over target ownership life 
    - Opportunity cost reflects current market return 
    - lease cost is financial lease only (for comparison) 
    2. You have all operating costs included in reach case for own vs lease

    A short term 1 to 2 year lease or ownership may not be cost effective.  The other option is a long term hire,  or even wet hire.

    If you want to assess options to transfer leased vehicles in to your fleet,  then you need to do a larger scope analysis that looks at total fleet cost for each scenario,  over a longer term like ten years. 

    Good luck 
    Doug


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    Doug Bartlett
    Manager Asset Planning and Management
    Shire of Kalamunda
    KALAMUNDA WAau
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